Financial Accounting: An Integrated Statements Approach, 2nd Edition

Hazard wrote off the following accounts receivable as uncollectible for the year ending December

31, 2008:

Customer Amount

Boss Hogg $ 5,000

Daisy Duke 3,500

Bo Duke 6,300

Luke Duke 4,200

Total $19,000

The company has provided the following aging schedule for its accounts receivable on

December 31, 2008:

Aging Class (Number Receivables Balance Estimate of the Percentage of Receivables

of Days Past Due) on December 31 That Will Become Uncollectible

0–30 days $380,000 2%

31–60 days 70,000 5

61–90 days 30,000 15

91–120 days 25,000 25

More than 120 days 10,000 50

Total receivables $515,000

a. Journalize the write-offs for 2008 under the direct write-off method.

b. Journalize the write-offs and the year-end adjusting entry for 2008 under the allowance

method, presuming that the allowance account had a beginning balance of $18,000 and

the company uses the analysis of receivables method.

c. Does the write-off of bad debts affect cash under the direct write-off and allowance

methods?

The following selected transactions were taken from the records of Shaw Company for the first

year of its operations ending December 31, 2008.

Jan. 31 Wrote off account of B. Roberts, $2,400.

Mar. 26 Received $1,500 as partial payment on the $3,500 account of Carol Castellino. Wrote off

the remaining balance as uncollectible.

July 7 Received $2,400 from B. Roberts, which had been written off on January 31. Reinstated

the account and recorded the cash receipt.

Oct. 12 Wrote off the following accounts as uncollectible (record as one journal entry):

Julie Lindley $1,350

Mark Black 950

Jennifer Kerlin 525

Beth Chalhoub 1,125

Allison Fain 725

Dec. 31 Shaw Company uses the percent of credit sales method of estimating uncollectible

accounts expense. Based upon past history and industry averages, 2% of credit sales are

expected to be uncollectible. Shaw recorded $750,000 of credit sales during 2008.

a. Journalize the transactions for 2008 under the direct write-off method.

b. Journalize the transactions for 2008 under the allowance method.

c. How much higher (lower) would Shaw’s 2008 net income have been under the direct

write-off method than under the allowance method?

380 Chapter 8 Receivables

Exercise 8-16

Entries for bad debt expense

under the direct write-off and

allowance methods

Goal 5

Exercise 8-17

Entries for bad debt expense

under the direct write-off and

allowance methods

Goal 5